Episode #126: Selling Your Proposal

Getting the Boss On board

At some point, every leader needs to present proposals to their boss in order to gain approval for deploying the organisation’s resources.

After years of analyzing and approving investment proposals (many for hundreds of millions of dollars), I demystify the process, giving you the practical tips that will enable you to deliver a winning proposal, every time.

Whether you’re asking for $50m to invest into a research and development project, $5m for a new software package, or $5,000 to upgrade an ailing piece of equipment in your office, the thought process is the same. 

Knowing what to present can mean the difference between acceptance and rejection. All leaders need to speak the language of finance, especially when it comes to making investment decisions.

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Selling Your Proposal: Getting the Boss On board

Episode #126 transcript

Hey there and welcome to Episode 126 of the No Bullsh!t Leadership podcast. This week's episode: Selling Your Proposal: Getting the boss on board. This week I'm taking a question from our listener, Rabih, who wants to know how you can more reliably and painlessly sell a proposal to upper management. Rabih asks "When a normal manager presents something to the GM, then that GM takes it to the COO or the CEO, they seem to only look at money and talk about EBITDA and a whole bunch of other financial acronyms. Can you please discuss this?" Well, as a matter of fact, I can. As the executive responsible for the capital productivity initiative at ASX 30 listed company Aurizon, and then as CEO of CS Energy, I had to assess hundreds of high value investment proposals, ensuring that the business cases and proposals were solid, rational, and ultimately represented the truth.

Why does this belong in a leadership podcast, you ask? Well, because as a leader, you don't want to make the kind of mistakes that either disempower your people or result in poor decisions being made. All leaders need to speak the language of finance, especially when it comes to making investment decisions. So we're going to start by exploring why every proposal needs a solid business case behind it. I'll then unlock the language of the business case for you. And I'll finish with my 10 top tips for approaching any proposal competently and selling it up the line. And to make it easier for you, I've even done a downloadable, which you can download above. All right, let's get into it.

Every proposal needs a business case behind it. It doesn't matter what industry you're in. It doesn't matter what your company produces for its customers. It doesn't matter whether you're into products or services. It doesn't matter what geographical location we talk about. And it certainly doesn't matter what type of proposal it is. In every proposal, you're asking for something from your organisation. Normally, the allocation of resources, be it money, people, time or assets. So you need to answer one very important question. How much is this going to cost, and what do I get for my money? Well, sort of two questions, but I've separated them with a comma to make it one. Why would the people making the decision on your proposal think it's a good idea? Because remember in organisations, there is never enough time, money and people to do everything you'd ultimately like to do.

So you have to rationalise. You have to do the things that add the biggest bang for buck, which is why a proposal doesn't just stand alone, it has to be compared against other potential sources of investment. You've got to make choices. As Michael Porter said, "The essence of strategy is about choosing what not to do". Let's just start with a really quick example to get you tuned in. Think of it like buying a car. Let's start with the strategic picture. What am I looking for and why? Now at the risk of using a cliched stereotype, I want to run with a young family with a stay at home mum. It's just the most obvious example I can pick up for you. So in this example, you might have a guy who goes out to work each day, a wife who's a stay-at-home mum with three young kids under the age of five, right? Let me tell you that is the tougher job! You've probably already figured out that you're not going to get that Porsche 911. If you follow a sensible strategy, you'll likely go for an SUV or a station wagon. And if you're planning on extending the family with a fourth child in the next year or so, you might even go for a minivan. Now, this is an important lesson. Know your current situation and what represents value to you right now and know where you're likely to head in the longer term so that you can anticipate this and make a better long term decision. Think about the person who has to approve this proposal. If you're selling the concept to your wife, you'd need to be mindful of her perspective. What does success look like for her? And if she would choose without any input from you, what would she decide to do? If this is radically different from what you do, is there any way you can both get what you want?

So maybe you're not going to get the 911, but a performance SUV like the Porsche Cayenne, or the Maserati Levante. Now talking of Porsches and Maseratis, you have to know your constraints. There's absolutely no point in putting a case forward for a high-end European car if your budget won't support it. So you've got to be able to evaluate the financial options, and of course if you're going the Cayenne, put a rational case for why it may be worth spending the extra money on a product that serves a purpose that can be satisfied much more cheaply. Know what you're looking for. And once you know what you're looking for, you can begin to determine how to get the best value. So you can shop around for specials, discounts, run out sales, ad-ons and so forth. Now that's just to tune you into the concept of the business case proposal in a simple way.

But using this example does remind me of a classified ad I saw in a local newspaper in the U S many years ago. A guy was selling his motorbike. It was a high-end Ducati, and the first part of the ed went through all the specifications and features of the bike. Now, most interestingly, it had been ridden for less than a thousand miles. And in the last line of the ad, it became obvious as to why. "Must sell due to misunderstanding with loving wife. Apparently, do whatever the hell you want, doesn't mean what I thought it did."

If you're going to present a proposal or business case you need to understand the language of a business case. And this includes being financially literate. Now in my head, there are six main elements to a good investment proposal, strategic fit, financial benefits, non-financial benefits, assumptions, risks, and then finally supporting and technical data. Let's start with strategic fit. How does this fit in with the overall direction of the organisation? You need to be able to demonstrate how any project or initiative that you invest in will contribute to the broader strategy of your business. If you don't have a strategy or it's unclear what that strategy is, then you have bigger problems. You have to be able to show why this is a better investment of the organisation's resources than any of the other available options. What value is going to be returned for your investment and how will you know if it has been?

Now, the second part is the financial benefits. You need to understand what the financial terms are and what they mean. There's no way around this. Key to this is understanding the time value of money and the discounted cash flow methodology. Now I'm not going to teach that here, it would take a really long time, but just go and Google it. There's some really good stuff out there that's pretty simple to understand. I love Investopedia for the simplicity of the explanations it gives on things. Even non-financial people can get a broad understanding of these terms. So let's just pick up on a few. Let's start with the weighted average cost of capital or WACC. Now money isn't free. The WACC is a percentage that represents the cost of investing any money in your business. Just like when you take out a loan from the bank, you pay interest on that loan. Now the WACC is a more complicated figure, but it's the same principle.

It just represents the cost of debt, the cost of equity and the relative risks associated with your business. Now you're probably never going to need to know how to calculate a WACC. Your finance guys can do that. You just need to know that it's a key measure of financial modelling that will determine whether or not your investment may be worthwhile. The next term I want to mention is net present value or NPV. If I were to invest a certain amount of money to deliver this initiative, as you've requested in your proposal, how much money will I earn from that investment and over what time period? And net present value basically gives you a single number that your expected return on investment. So if the NPV is greater than zero, then theory says it will be value accretive. If the NPV is less than zero, the theory says it will be value destructive.

Now, what this does is it enables you to look at investment, understanding the cost of the money you're using. If you just use simple dollars and no timeframes, then you're going to get the wrong answer. IRR, the internal rate of return is another one. Sometimes it's called ROR rate of return. But this is the percentage return on your investment that results in a net present value of zero. In words, what's the return that I'm expecting to make on the project in a percentage term. It's useful in that it lets your board set very clear hurdle rates. For example, we will only take investments on that deliver an IRR of 16% or greater. And this is particularly useful for capital projects. If your IRR is less than your WACC, you shouldn't proceed with the investment. You'll lose money because it costs you more to service the money you're investing then you can actually earn out the back end.

All right so that was a little bit complicated. Don't worry, the episode's going to get easier. I just skimmed over the top of those terms, but take them and go and spend some time working your way through Investopedia or some site like that, to understand them a little bit better. DCF, WACC, NPV, and IRR.

All right, let's move on to intangible benefits. Now we know that not all value is financial. Value comes from many different sources and sometimes it isn't even really able to be quantified. I've seen fantastic proposals for all sorts of things that deliver no direct financial benefit. For example, an employee value proposition project to assist in the recruitment and retention of top talent. A safety initiative to develop people's awareness of behavioural safety, leading to fewer workplace injuries. Customer loyalty programmes to reduce churn in the customer base. Sponsorship of community programmes to maintain our social licence to operate. And leadership development programmes, to grow the individual and collective bench strength of the organization's leadership. Value comes in all shapes and sizes and it's not all about money.

Okay, talking of non-financial value in leadership development programs, let me just break in quickly to drop a brief word in about our Leadership Beyond the Theory program. If you love this free podcast, Leadership Beyond the Theory, or LBT as we like to call it, is the next step. When you're ready to get really serious about improving your leadership capability and confidence, LBT is like rocket fuel. It turbo-charges your development and your career prospects. Why? Because it gives you a proven system and practical tools that will enable you to deliver exceptional results. Now we only run two cohorts a year and we're opening registrations for the first 2021 cohort shortly. The reason I mentioned it in this episode is because one of the tools we developed is a simple business case template to help you approach your boss, to fund the programme for you and invest in your development.

Not only will it be life-changing for you as a leader, it will also enable you to add untold value to your current employer. It's absolutely a win-win. So if you're thinking of joining the cohort head to www.yourceomentor.com/businesscase and put together a winning proposal that convinces your boss why they should invest in your development right now. As a smart leader, committing to LBT is probably the smartest decision could make right now, but don't take my word for it. Check it out on the, Your CEO Mentor website to see what our LBT alumni say. We've seen it change hundreds of leaders lives already, and we're supremely confident in the powerful impact it'll have for you. All right back to the business of business cases.

The fourth element of the business case is assumptions. And there are assumptions behind pretty much every number. These are closely related, but sometimes an underrated part of a proposal. The numbers that a financial case relies on are often incredibly sensitive to the assumptions that sit behind them. So make it clear what those are. For example, an assumption about how many customers will buy a new product in its first year, may make the difference between the product being profitable or losing a fortune for you. An assumption about the percentage of customers who will take advantage of a pay on time discount can radically affect profitability. I've been bitten by that one. A proposal which involves a contract in a foreign currency, for example, sourcing a new product from the US for distribution in Australia, carries exchange rate risk. Your revenue may be in Australian dollars, but a large part of your costs could be in U S dollars. So look for scenarios and sensitivity analysis. In that last example of the exchange rate risk, our assumption is for an exchange rate of 75 cents US to the Australian dollar. But what if that exchange rate drops to 70 cents as it can easily do? How does that affect the economics of the arrangement? The fifth element is risks. What are the risks that may impact on your proposed outcomes? There'll be risks in design, planning, implementation, and realising the benefits from your programme, but what are they? Risk is a combination of two things. The likelihood that something's going to occur and the consequences if it actually does. These combine to give you an overall risk rating and there should be a treatment plan. So what will you do to reduce the major risks that you can foresee in this proposal? What happens if your risk actually materialises and how do you handle it?

Most proposals under-rate the risk factors, and sometimes don't even identify some of the more significant risks. And it's pretty easy to see why. One could be forgiven for presenting a proposal in 2019, that completely failed to identify the risk of a global pandemic destroying the business. Number six, finally, supporting evidence and technical data. Now this doesn't have to be lengthy. It can be short and sweet, but there has to be data to support any claims you make. Market research, engineering data, scenario modelling, historical trend analysis, whatever it is. The most important thing, is that it is supporting information. The meat and potatoes is all about what value you deliver, both financial and non-financial, and it does make strategic and commercial sense to do it. One of the most often committed sins I've seen in proposals in industrial businesses is to focus purely on the technical data. Quite often, you'll see proposals that are for tens of millions of dollars of investment, and they're technically very thorough, but they miss the point. In a hundred plus page business case sometimes nowhere can I find the few key things that I most need to make a sensible decision. How does the investment drive commercial value? Many proposals lack rigour in the financial models. Assumption analysis is weak. Scenario modelling is sometimes missing all together. Even a thorough options analysis of the technical options, is often not there.

To finish off, my top 10 tips for getting your proposal accepted! Now let's start with one very important truth. If your proposal doesn't clearly demonstrate a path to delivering tangible value, it doesn't deserve to be approved. So rather than sitting around bitching and moaning about having it rejected and blame your boss for not approving it, work out how to craft and present your case in a more logical and compelling way. And don't worry, Rabih, I'm not having a crack at you with this comment, mate. Your question was awesome and it's enabled me to uncover a huge amount of value in this episode for our community. But too often, I've seen people's poor business cases rejected and rather than trying to work out why they blame the person who rejected it. Now, if it is rejected, then don't take it personally. I've seen really well-constructed and articulated proposals, not gain approval simply because, in the scheme of things, there were just other more compelling investment options. Remember, almost every organisation has to make choices about what they invest in. You can't afford to do everything. So here's a quick run-through of what to think about in putting together a proposal to give it the best possible chance of success.

And as I said, this 10 tip downloadable is available for you to download for free at the top of this page. Number 1, know what goes into a solid proposal. Make sure you cover all the major food groups, strategic fit, financial benefits, non-financial benefits, assumptions, risks, and supporting data. If you're weak in any of those areas, collaborate. So for example, if you're an HR person, it's unlikely that you'll be comfortable with financial modelling. So get a financial expert to assist. Make sure your proposal always answers the core questions. When and where will I see these benefits? How will I know when value has been created?

Number 2, make sure your proposal is fit for purpose. Now for an investment of $50 million, it might warrant a 50 page business case to adequately describe what you want to do. But for a potential investment of $5,000, it might just be a one pager. No matter how long it is, it still needs to follow the same thought process. Here's why we want to do this. Here are the financial and non-financial benefits. Here are my assumptions and risks, and here is my proof.

Number 3, ensure your proposal has strategic consistency. Be really clear on how the proposal fits in with the organization's higher order objectives. And describe this in a succinct and direct way. For example, this initiative contributes to our strategic objective of creating additional growth in the direct to market online channel by 15%.

Number 4, know the value proposition. This is more than just the baseline numbers. You need to be able to describe how, where and when the value will be delivered and be really clear about how the benefits are going to be captured.

Number 5, know your boss's motivations. Put yourself in the shoes of the person or people who are evaluating the proposal. What are their hot buttons and how does your proposal fit into the larger scheme of the work programme that they're trying to execute on?

Number 6, learn to speak the business case language. You need to understand the financial elements of a business case. There's no way around it, as I said before. But even for a non-financial benefit, there'll be resource inputs and costs. So work out how to describe these in the proposal.

Number 7, ranges are your friend. So you show your grasp on the risks and assumptions by setting up ranges of value outcomes. Instead of hanging your hat on definitive numbers, so for example, saying in a business case, this investment has a net present value of $18.3 million, recognise the uncertainty. This will give you some credibility. Maybe you say something like "This investment has a net present value of between $2.3 million and $11.0 million". Then you get to have the conversation about what those swings and roundabouts are.

Number 8, don't lead out with the intangibles. Now every proposal has intangible benefits, but don't use that as the foundation for your request because there'll be discounted anyway. The intangibles are by definition non-quantifiable so they won't be as strong. You've got to try and find a way to describe the value of the tangibles. We spoke earlier about the licence to operate. Now it's okay to articulate a risk stopper. For example, "This an important community initiative that protects our licence to operate the power station in this region. The current valuation of that asset is $830 million, which puts this $120,000 investment into perspective". Don't be afraid to say stuff like that.

Number 9, technical detail is the icing on the cake, not the cake itself. Make sure your analysis is sound. It's got to stand up to scrutiny, but don't spend 50% of the real estate in your proposal explaining the technical elements in excruciating detail. That's not the thing that's going to determine whether or not it's a good investment and whether or not your proposal is going to be accepted.

Finally, number 10, drive for simplicity. The easier your proposal is to understand the more likely it will be approved. When complexity and a lack of clarity dominate the proposal, the evaluators will be reluctant to approve it, only because they don't understand it fully. Your proposal doesn't need to be complicated or elaborate, even if it's written on the back of a table napkin, just make sure it describes why it's important to your boss and what you'll get for her money.

All right, so that brings us to the end of episode 126. Thanks so much for joining us, and remember, at Your CEO Mentor our purpose is to improve the quality of leaders globally. So please take a few moments to share this episode with your leadership network. I look forward to next week's episode, leadership and purpose. Until then, I know you'll take every opportunity you can to be a no bullsh!t leader.

Until then, I know you'll take every opportunity you can, to be a no bullsh!t leader.

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